From its origins in the coffee houses of London during the late seventeenth century until now, the modern insurance industry has always been affected by the vagaries of the weather. The Lutine Bell traditionally rang out in the Lloyd’s Building in London to alert underwriters to impending bad news like the sinking of a merchantman with an insured cargo during a storm.
Nowadays, the weather impacts insurance companies in two distinct ways. First, there are the claims. Worldwide damage  and  weather-related-losses  have  increased  from  an  annual  average  of  $50bn  in the  1980’s  to  nearly $200bn  this  decade  according  to figures  recently released  by  the World  Bank.  Secondly, there  is  the  physical effect  on the  investments  held  by insurance  companies from  extreme  weather  events  as  well  as the  impact  of new carbon regulations and disclosure rules on their portfolios.
That’s why the Chairman of Lloyd’s, John Nelson, has said that understanding and incorporating climate change into  future  modelling  has  become  essential  for  anybody  making  long-term  financial  commitments,  be  that investing  in  infrastructure  &  housing  or  making  public policy.  So  how  has  the  industry  been  addressing  the problem since Hurricane Sandy devastated parts of the north eastern seaboard of the United States in 2012?
Initially, it didn’t do much. A report by advocacy group Ceres in 2014 ranked the largest 330 insurance companies with a presence in the United States by what they said they were doing to address the problem. The most pro-active among them were ACE, Munich Re, Swiss Re, Allianz, Prudential, XL Group, the Hartford, Sompo Japan & Zurich. By contrast health & life and annuity providers, which between them hold two thirds of the industry’s overall investments, ranked poorly.
However, since then the intervention of the SEC in America and the Prudential Regulatory Authority in the UK has  pushed  climate  change  higher  up  the  agenda  and  led to  greater  disclosure  in  general.  To  give  some examples, brokers are now including new “green clauses” in buildings’ policies which specify types of materials and design. Climate risk management advice is being given to companies on their supply chains. And health, life &  annuity  providers  are  increasingly  defining  environmental  as  well  as  social  &  governance  criteria  in  their investment mandates.
“The  rating  agencies  are  now  insisting  on  robust  asset/liability  management  capable  of  mitigating  the  double exposure  of  their  clients  to  both  claims  and  investments.  As  the  Washington  insurance  commissioner,  Mike Kriedler,  said  recently: “This  is  not  just  a  partisan  issue,  it’s  about  financial  solvency  as  well  as  consumer protection.” But although for many the debate appears to have moved on, there remain some for whom it has not. The American Coalition for Clean Coal Electricity recently criticised the peer-reviewed, 840-page national climate assessment report as “full of unsubstantiated tactics & hyperbole.”